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Evy Hambro admits to being 'thoroughly disappointed' by the poor performance of listed gold equities over the past few months, but he still believes the catalysts for positive reratings are in place. Hambro manages the BlackRock Gold & General fund, which is a pick of Citywire Selection.

Hambro said that last September gold shares started to close the gap on the gold spot price, but they have since tracked lower again, in line with the broader equities sector.

In common with many other managers in the same sector, Hambro's gradually increasing holding in gold miners and a reduction in physical gold holdings in anticipation of a reversion to the long-term pattern of gold shares beating the gold price has yet to pay off.

Diversity limits losses

However, adding to more diversified plays has led to the fund losing slightly less than the index and many of its rivals over the past few months.

In the 12 months to 21 May the benchmark FTSE Gold Mines index is down almost 29%, with Hambro's fund down 28%. Since the start of the year to 21 May the fund is down 17.5%, compared with 21.2% by the index.

Hambro said the relative outperformance had come mainly from an increasing focus on miners that were not pure gold plays. Silver miners Fresnillo(FRES.L) and Penoles (the second and ninth biggest holdings respectively) have been outperformers, as well as gold royalty company Franco Nevada (4.5% of the £3 billion fund), which is a recent new entry to Hambro's top 10.

All three have been gradually increased in the past few months along with some shares in small companies after money was taken out of physical gold holdings.

Proceeds have also been recycled into listed miner Eldorado Gold. Hambro took the opportunity to increase his stake to almost 5% after it dropped on fears over its acquisition of European Goldfields. 'We feel it has fantastic growth prospects and will become a core holding,' Hambro said.

Rise of dividend culture

Hambro said that despite his disappointment with listed gold, he was optimistic that the rise of a dividend culture, limited production levels, and continued demand from emerging markets should all support the sector in the long term.

'The catalysts are coming through: companies are raising their dividends, albeit from a low base, and they are still quite low compared to the diversified miners, but they will get there,' he said.

Reducing Newcrest

At the end of March, Australian gold miner Newcrest was the fund's largest position, and reached a peak of 9.8% of the fund last year. But after its troubled acquisition of smaller rival Lihir last year, and various production disappointments, Hambro has reduced the position. The firm is now down to just over 7% of the fund – an underweight compared with the index.

'Its recent weakness has helped us in absolute terms. We are disappointed that the management do not seem to be as on top of things as we thought. They have not just been unlucky [with poor weather] there have been other things they were not prepared for.

Shares in a gold company are as manipulated as all shares. When the stock market goes down so do these gold company shares. Don't be confused when people say buy gold to mean buy gold shares, holding the physical stuff is different, it is finite and whilst it can go lower the markets shouldn't be-able to manipulate the price like the paper based shares can be.